In his weekly video update, the Westpac chief economist points out that net immigration is extremely strong, at a 10-year high.
Over the past year, 36,000 more people have been added to the New Zealand population.

Stephens said that was entirely a transtasman phenomenon, as Australia’s economy slowed and New Zealand was doing well.  He said fewer people were choosing to move to Australia but it was likely a temporary state of affairs.

“New Zealand won’t always be buoyed by the Canterbury rebuild and Australia won’t always be so slow,” he said.

Stephens expects the trend to turn around again, but not before 2015 or 2016.

The Reserve Bank is concerned that the population growth could put further pressure on the housing market, which would then flow on to inflation and require more interest rate hikes.

But Stephens said he was not so concerned about the effect of immigration on house prices. He said that as migration had ramped up substantially this year, the housing market had slowed.

He said there was some scope for a modest revival this year, due to the low fixed rate mortgages on offer, and the fact banks were loosening lending to those who want to borrow more than 80%.

Stephens predicts house price inflation of 5.5% this year, compared to the 7.5% the Reserve Bank is worried might occur.